The top line for Onyx Pharmaceuticals
Onyx and its marketing partner, Bayer, have a different arrangement for Japan compared to the rest of the world. In most places, Onyx records revenue in the form of a joint venture, but it receives royalties on sales Bayer makes in Japan. Nearly half of the increase in Nexavar sales compared to the year-ago quarter came from Japan, where Onyx gets a 7% royalty rate. If you count all the cost of the joint venture and Onyx's individual selling, general and administrative expenses, about 18% of every dollar from sales in the rest of the world can trickle toward the bottom line.
Royalties in and of themselves aren't bad -- Gilead Sciences
To continue growth at a healthy clip, Onyx needs to prove that Nexavar works on additional tumor types -- it's currently approved to treat liver and kidney cancer. Investors might complain about the 55% increase in research and development expenses, but I don't think Onyx has much of a choice. Results in trials under way for breast, ovarian, and lung cancer -- three large markets -- will drive sales in the future.
The potential of Nexavar will always be a major component in the value of Onyx, but investors should watch the growth in current indications -- and where it's coming from -- in case the additional indications don't pan out.
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